Pricing a Product

Once a business has a product to sell, the next consideration is how to price the product. The business wants to price the product high enough to make a profit, but not so high that a typical customer wouldn't buy it. Read this section to learn about various pricing strategies.

(AACSB) Communication

Most calculators come with a book of instructions. Unfortunately, if you misplace the book, you're left to your own devices in figuring out how to use the calculator. Wouldn't it be easier if the calculator had a built-in "help" function similar to the one on your computer? You could just punch the "Help" key on your keypad and call up the relevant instructions on your display screen. You just invented a calculator with this feature, and you're ready to roll it out. First, however, you have to make some pricing decisions:

  • When you introduce the product, should you use skimming or penetration pricing?
  • Which of the following pricing methods should you use in the long term: cost-based pricing, demand-based pricing, target costing, or prestige pricing?

Prepare a report describing both your introductory and your long-term alternatives. Then explain and justify your choice of the methods that you'll use.